Clay Sell was drifting off to sleep at home in Dallas when the phone rang. It was Alexander “Andy” Karsner, who reported to Sell at the Energy Department during President George W. Bush’s administration and had become a friend.
“It was classic Andy style,” Sell said of the late call. So Sell got dressed, and the pair went to the Katy Trail Ice House, a local watering hole. Karsner was confident he had the votes he needed but was waiting to see what sleight of hand ExxonMobil might deploy in the unprecedented vote-counting process that had already lasted days and seemed aimed at blocking Karsner’s effort. Sell didn’t get home until 2:30 a.m.
On June 2, however, Karsner was declared the winner, a victory not only for him but for the small activist hedge fund Engine No. 1, which held just 0.02 percent of ExxonMobil’s stock but marshaled commanding support from investment managers, pensions funds and individual shareholders. Karsner became the third activist nominee to win a board seat over the objections of ExxonMobil’s management, which had declared the activist slate unqualified.
The next day, a chastened ExxonMobil chief executive Darren Woods spoke with Karsner, congratulating him and urging him to see what the company’s researchers were up to.
“I don’t go into this looking for villains,” Karsner said in an interview, circumspectly holding back on specific remedies. “I’m looking for constructive, candid engagement as a way to make this a better, more profitable, more sustainable company.”
Sell put it a little differently. “Can you imagine anyone better suited to storm the walls of the old ExxonMobil and really help shape the transition of that company in the future than Andy? He was made for it,” Sell said.
The installation of Karsner as one of ExxonMobil’s 12 board members shows how much has changed among Republicans involved in the energy business, a group that is looking for ways to deal with climate change, not dally over whether it really exists. And the proxy fight shows how shareholders and investors no longer judge ExxonMobil by the size of its oil and gas reserves, but rather by looking at the company’s plans for decarbonizing its operations and thinking about how to make a transition to a very different kind of enterprise.
That demands a very different kind of director or employee.
The garrulous Karsner has spent the past two decades as an evangelist for renewable energy and other climate solutions, from a London wind business to a policy spot in Washington to an ideas and investment effort in Silicon Valley.
As Bush’s assistant secretary of energy efficiency and renewable energy, Karsner supported legislation on biofuels, appliance efficiency and LED lightbulbs. He has played a role in back channel, or track 2, dialogues with India about climate agreements. For his quest bolstering renewables, he was dubbed a Swedish knight.
Now he is a senior strategist and “Space Cowboy” at X, the self-described “moonshot factory” at Google parent company Alphabet that tries to generate new ideas for old problems. He favors a carbon tax-and-dividend plan that would put a price on carbon and give the revenue back to households to spend as they like. He has backed the need for “natural capital” to correct market failures. “Today, we don’t have a ‘Nasdaq for Nature’ or a ‘Dow Jones for Deforestation’ — but in the future, we must,” he said in congressional testimony in October 2019.
By contrast, ExxonMobil, a corporate descendant from the Standard Oil Co. monopoly founded in 1870, has been a laggard in the new ideas business, forecasting that there would be ample demand for oil and natural gas well into the future.
So when Engine No. 1 came looking for four people to run for ExxonMobil board seats, Karsner — dubbed The Great Karsini by the actor and conservationist Edward Norton — was “proud” to sign up, saying that as long as ExxonMobil lacked an effective climate policy it would not have a financial strategy for the “inevitable energy transition over coming decades.”
In one of its Securities and Exchange Commission filings, however, ExxonMobil said that it “found that none of the Engine director candidates meet the standards or needs of the Company’s Board,” even though they included former senior executives of wind turbine, oil refining and biofuel companies.
Woods and other incumbent directors phoned big institutional shareholders such as BlackRock, State Street and the Vanguard Group, trying to persuade them to vote against the Engine No. 1 slate, the hedge fund alleged. Engine No. 1, founded by Silicon Valley veteran Chris James, had spent “tens of millions” of dollars on its proxy fight, and James believed ExxonMobil had done the same. ExxonMobil told the big shareholders to divide their votes so that the Engine No. 1 candidates, in particular Karsner and Anders Runevad, former chief executive of Vestas Wind Systems, would fall short. Vanguard voted for two of the nominees with oil refining experience, Gregory Goff and Kaisa Hietala, but not Karsner or Runevad. BlackRock voted for all but Runevad.
Karsner placed 11th, securing a spot on the 12-person board.
Many experts on energy policy hailed Karsner’s selection.
“I’ve known Andy Karsner for years, and he’s a force of nature,” said Jason Bordoff, founding director of Columbia University’s center for global energy and a senior official in President Barack Obama’s administration. Bordoff said Karsner was “committed to much stronger climate action, with private sector experience, who knows how to work with companies from the inside to position them to succeed in the clean energy transition.”
At the same time, Bordoff warned, there was only so much ExxonMobil could do on its own. He said that “global emissions do not go down unless oil demand declines. If Exxon sells oil assets, and others buy those assets and produce the oil, emissions don’t decline, which is why we need to accelerate the pace of transition dramatically.”
“I know people say that Andy’s just a talker. And that he doesn’t do nearly as much as he says,” Sell said. “But as much as Andy talks, if he only did 10 percent of that, that’s still twice as much as what most people do.”
Karsner, 54, is the son of a woman from Casablanca’s Jewish community who later became a successful chef, and a career Air Force officer. Karsner left Fort Worth to go to Rice University in Houston, then joined a small Michigan firm, which back then was getting out of the oil and gas drilling business and was developing power plants. Karsner worked as an energy analyst and international project coordinator.
Later he lived in Hong Kong and London. On his way to Hong Kong he met a Swedish woman backpacking in Indonesia; they married and have four children. In Hong Kong, he worked for Helsinki-based Wartsila, and he realized that fast-growing economies of Southeast Asia could get power from diesel generators on barges, said James Connaughton, who was head of the Council on Environmental Quality in the George W. Bush administration. Karsner said he also developed a heavy fuel oil-burning plant in Pakistan.
“It’s always hard to reexamine your younger self in the context of an earlier time,” he says now, recognizing the negative climate ramifications of those projects. “In my mind, my mission was to bring light to people who didn’t have light, electrify villages, and lift the human condition.”
From London, he ran a small firm, Enercorp, promoting a wind project in Morocco, before selling a half interest to another company. Enercorp was also a sales agent for Vestas Wind Systems, one of the world’s largest turbine makers. Karsner traveled to the Danish headquarters to persuade the chief executive to plan for utility-scale wind farms generating 200 to 400 megawatts of power, well beyond the usual size at that time.
The CEO, who sat rolling his own cigarettes, wasn’t convinced. He told Karsner that Americans always planned to walk on the moon. Karsner said that Vestas risked becoming an asterisk in the history of wind power.
Karsner, and others with the same vision at that time, turned out to be right. Bigger wind developments became the norm, and Vestas pivoted and remains one of the world’s leading wind turbine makers.
At the Energy Department from 2005 to 2008, Karsner oversaw a nearly $2 billion annual budget. He helped create the Advanced Research Projects Agency-Energy (ARPA-E), modeled after one at the Defense Department credited with innovations such as the global positioning satellite (GPS), the stealth fighter and computer networking. Karsner also foresaw that regulations promoting light-emitting diodes (LEDs), then costly, would cause them to come down in price and eliminate incandescent bulbs.
In a ceremony at the Swedish ambassador’s residence in Washington, Karsner was dubbed a “Royal Commander of the Polar Star” for his role in advancing European-U. S. technology collaboration. It was the highest honor bestowed by Swedish King Carl XVI Gustav, and Karsner surprised some with a few comments in Swedish.
After serving at the Energy Department, Karsner started his own investment firm called Manifest Energy. He also was put on a handful of boards, including Applied Materials and Conservation International, where he met Laurene Powell Jobs. With her support, Karsner became a managing partner of the Emerson Collective. He invested in successful emerging firms in 3-D printing, autonomous vehicles, and a waste-to-energy technology, and Boom Supersonic, an airplane manufacturer. United Airlines this month said it would buy 15 of Boom’s planes, which would cut long flights in half and use synthetic jet fuel.
Karsner relishes the opportunities these boards create. He met the actor Norton in Seattle in an effort to recruit him to the Conservation International board, and their meeting turned into a conversation that lasted through daybreak. Karsner said “the things we had begun conceptualizing that first evening of introduction have blossomed into an extraordinary collaboration.” Later they traveled to Morocco where Karsner entertained one evening in djellaba and fez.
Karsner also has become a regular on speaking circuits where Republicans critical of former president Donald Trump are in demand. Asked about Trump’s climate denial, Karsner said on the podcast Climate One last year that “this president lives in a different place … and he’s only the face of a franchise, you know. The real question is who’s the team beyond the sort of nepotism and Mafioso he’s got himself surrounded with.”
He added, “I am a Republican from the party of Lincoln. There is nothing that this con man and Abraham Lincoln have in common.”
Today the White House is rallying to the battle over climate change. And the question is: Can a small hedge fund, with three dissident directors on a 12-person board, shake up the biggest U.S. oil company and steer it toward a new climate-change stance?
Karsner landed in the group in part because of Amy Myers Jaffe, an oil expert who had spent years teaching at Karsner’s alma mater, Rice University. She also knew Karsner through the Council on Foreign Relations, where he co-chaired seminars on digital technology and energy. When she heard that the founder of Engine No. 1 was searching for ExxonMobil board nominees, she recommended Karsner.
California Public Employees’ Retirement System (Calpers) was one of the first big fund managers to throw its weight behind Engine No. 1. Anne Simpson, the Calpers managing investment director for board governance and sustainability, said the pension fund interviewed the candidates as to how they could become “change agents” when in a minority on the board.
Separately, Vanguard probed the oil giant, declaring that “an increasingly pressing need exists for Exxon to better align its climate strategy with (1) target setting in line with global peers and (2) its public policy efforts related to climate risks.”
Corporate history says that Woods has reason to be worried.
“A CEO who loses board seats to an insurgent has about a 50/50 chance of being in office 18 months later,” John C. Coffee Jr., a law professor at Columbia University, said in an email.
“The nature of board dynamics tends to be nonconfrontational,” said Eric Talley, an expert on corporate law, governance and finance at Columbia Law School. “If you add in one or two board members or better yet three or four saying, ‘Hold the phone. Do we even have enough information to judge this decision the CEO is pushing?’ It’s hard to ignore information once it’s out in the open.”
More companies are feeling pressure from shareholders who join to leverage their power. Calpers, for example, has voted against 900 board candidates over the past several years. And the pension fund is unlikely to be satisfied without real change at ExxonMobil. “This company needs to be turned 180 degrees, and that’s going to take a lot,” Simpson said.
The oil industry has special hurdles when it comes to climate change because it must scale back its traditional, central business and drastically restructure. BP and Royal Dutch Shell are already doing this, with BP saying it will slash its oil and gas production 40 percent in a decade while buying into renewables. A Dutch court ordered Shell, which already had an ambitious plan, to go deeper and faster in its transition.
While many climate activists have pushed shareholders to divest from their stakes in fossil fuel companies, the shareholders who still have stakes in ExxonMobil have sent management a message. And it means that Karsner will end up with a hands-on role, not a hands-off one.
“Exxon will succeed with a strategy that strengthens the hand of its incredible scientists, technologists, engineers, and business people,” Karsner said in an email, “to achieve an unprecedented but inevitable energy transition in a manner our communities expect, our ecosystems need, our shareholders demand, and our children deserve.”
